Jobs go as bank heads for market

The Co-operative Group said investors who bought bonds in its troubled banking arm, including US hedge funds, will be given 70 per cent of the bank’s shares, leaving it with 30 per cent.

The revised rescue plan aims to plug a £1.5bn black hole in the bank’s finances caused by the purchase of the Britannia Building Society and aborted plans to buy hundreds of Lloyds Bank branches. The funerals-to-supermarkets group had initially hoped to retain control of the ethical lender by giving bond investors a minority stake in return for a £500m loss on their debt.

However bondholders, including US hedge funds Aurelius Capital Management and Silver Point Capital, will take control under the new plan – which will see it listed on the stock market next year.

The Co-op’s loss of control of the bank has raised concerns among some customers. It has traditionally attracted organisations like trade unions and charities because of its ethical approach.

But the Co-op said its values and ethics will be “legally embedded” in the lender’s new rules.

Investors must now vote to back the plan, and the Co-op warned that the bank will fall into state hands through the resolution process if they do not, leaving investors empty-handed.

The group announced plans to close about 50 of its 324 bank branches, about 15 per cent of its estate, without revealing how many jobs will go among the lender’s 9,000 staff.

But Co-op Group chief executive Euan Sutherland admitted there will be “significant” job losses, saying that staff will be informed first.

The company also aims to slash costs across its call centres, while investing in digital and self-service banking.

The group – which traces its roots back to 1844 when workers known as the Rochdale Pioneers pooled resources – took out advertisements in national newspapers yesterday to reassure customers that the bank will retain its ethical approach.

It insisted the lender has not seen a customer exodus, despite the involvement of hedge funds, adding the bank will only be able to use the Co-op name while the ethical principles remain embedded in its constitution.

Mr Sutherland said: “We recognise the huge importance of ethics and values for all our customers and remain committed to upholding them.”

Its turnaround is expected to take four to five years, and will shift its focus to households and small and medium-sized businesses.

The Co-op added that the bank’s outlook remains “challenging”, although monthly bad debt charges have fallen.

The fundraising has been forced on the bank by City regulators after it endured heavy losses in recent years, including a half-year loss of £709.4m, following its takeover of Britannia Building Society in 2009. The Co-op said the plan has been backed by the Financial Conduct Authority and Prudential Regulation Authority, who are demanding it finds £1.5bn of capital as a buffer against future crises.

Retail investors such as pensioners who bought the bank’s bonds for a steady income will be offered a choice between two types of bond - one paying income and another repaying the principal they invested – although they will still suffer losses.

Mark Taber, who campaigned for retail investors, said: “This deal has been extremely hard-fought and is now a much better solution for retail holders and pensioners.”

The Co-op Group has confirmed it will be contributing £462m to the restructuring.